SEOUL (XINHUA) – South Korea’s currency was forecast to fall further versus the US dollar on expectations for the United States (US) Federal Reserve’s interest rate hikes and South Korea’s continued trade deficit, market watchers said.
The won/dollar exchange rate finished at KRW1,438.9 per dollar yesterday, down KRW1.0 from the previous day.
The rate topped KRW1,440 during the Wednesday trading session, marking an intraday high since March 16, 2009 when the global financial crisis roiled the financial markets across the world.
Possibility remained high for the South Korean currency to depreciate further as the country’s trade balance would stay in the red amid the expected growth in energy import in winter, an analyst at NH Investment and Securities Kwon Ah-min said in a report.
South Korea’s trade deficit hit a new monthly high of USD9.49 billion in August. Import surged 28.2 per cent while export added 6.6 per cent last month.
The country recorded trade deficit for the fifth successive month on surging energy prices. Energy import amounted to USD18.52 billion in August, up 91.8 per cent from a year earlier.
The first 20 days of September, trade deficit reached USD4.1 billion.
The Fed’s rapid rate hikes led to a strong dollar that weighed down on the South Korean currency.
The Fed took a giant step for the third time earlier this month, raising its benchmark interest rate by 0.75 percentage points to a range of 3.00 to 3.25 per cent.
Expectations ran high for the US central bank to lift the key rate further during the upcoming rate-setting meetings by the end of this year.
The Bank of Korea (BOK) was forecast to hike its policy rate by 50 basis points in October, but upward pressures on the won/dollar exchange rate remained high amid the Fed’s tighter monetary policy, fixed-income strategist at Shinhan Investment Corp Ahn Jae-kyun said in a report.
The BOK launched its rate hike since August last year, lifting its policy rate in seven steps from 0.50 per cent to 2.50 per cent to curb runaway inflation.
The Korea Economic Research Institute (KERI) forecast that the won/dollar exchange rate would hover above KRW1,400 per dollar even after the BOK’s 50-basis-point rate hike expected in October.
The weak South Korean currency helped boost export by improving price competitiveness of local exporters in the past, but it failed to bolster export this time amid the growing concerns about economic downturn.
For the first 20 days of September, the export reduced 8.7 per cent compared to the same period of last year.
Global credit rating company Fitch on Wednesday said it expected the South Korean economy to grow 2.6 per cent in 2022. It was revised down from the rating appraiser’s growth estimates of three per cent in January and 2.7 per cent in March.